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Take-home Pay Is Not the Measure of Child Support

by bvertz on Jun 8, 2009 • Comments Closed • , , , ,

In Pennsylvania, child support is based on the net incomes of the parents, so it shouldn’t be difficult to figure, right? Um, wrong.  It might seem as simple as looking at a W-2 or pay stub, or perhaps a tax return, to figure each parent’s net income, but child support is not based on take-home pay. The definition of income under the child support law includes more and less than taxable income. Here are some (but not all) of the differences between take-home pay and net income:

1. 401(k) contributions – On a pay stub, 401(k) contributions are deductions that reduce an employee’s net income. In divorce court, however, 401(k) contributions are added back to a parent’s income in most instances. In fact, if an employer makes unmatched contributions to the parent’s 401(k) plan, those contributions might be added to the parent’s income even though it is not take-home pay.

2. Disability insurance, life insurance, savings bonds – Some employees elect to pay for group disability or life insurance policies through pretax deductions, or defer part of their income into savings bonds and credit unions. These elections reduce their take-home pay, but the divorce court generally adds it back to net income.

3. Restricted stock – When restricted stock vests, it is generally reported as income on a pay stub or W-2. If the restricted stock was issued prior to separation, however, it might be marital property. The restricted stock can be considered as income for support purposes, or property for equitable distribution purposes, but not both. Therefore, restricted stock is excluded from net income in some cases.

4. Pass-through income – An owner of a business organized as a partnership or  Subchapter “S” corporation receives an annual K-1 form which reports his or her share of the business income. In reality, the business might not distribute the partner’s entire share of profits. Some businesses distribute just enough to enable the partner to pay his or her taxes. In divorce court, the retained earnings of a business may be excluded from the owner’s income if they were not actually distributed and the owner does not own a controlling interest.

Why Good Drafting Counts

by bvertz on Feb 17, 2009 • Comments Closed • , , , , , , , , , ,

A recent decision issued by Florida’s intermediate appellate court, Craissati v. Craissati, amply demonstrates the importance of good contract writing skill. The husband and wife in this case entered into a marital settlement agreement, in which the husband agreed to pay alimony for eight years. Like most alimony agreements, this agreement provided that the alimony would terminate upon the death of the recipient, her remarriage, or cohabitation for a period of three months or more.

The wife in this case was incarcerated after a DUI conviction, and the husband petitioned the court for termination of his contractual alimony obligation. The parties stipulated that wife was, technically, “cohabiting” with her cell mate for a period in excess of three months, and that the termination clause of the marital settlement agreement was unambiguous. Still, the trial court held, the termination of alimony due to incarceration would be an absurd result not within the contemplation of the parties. The trial court modified the amount of alimony (since wife’s needs had been temporarily curtailed) but refused to terminate the obligation.

On appeal, the Florida appellate court reversed, adopting a literal construction of the agreement. Adding insult to injury, the author of the opinion found that driving under the influence was a voluntary act known to possibly result in incarceration, so the wife should have known that her criminal behavior could result in the termination of alimony.

If only the prisons were less crowded, the wife could have maintained her alimony award, I guess.